3 Key Steps to Preventing Small Business Loss in Disaster (With Resources)

A community's small businesses can weather disasters by formalizing disaster recovery plans that maintain essential operations and pay the bills.

Without disaster recovery plans in place, small businesses struggle to reopen after a storm, fire, flood, or server failure that forces them to shut their doors. For 40 to 60 percent of small businesses, a weather disaster marks the end of the road.

However, business failure following a natural disaster doesn’t have to be inevitable. The following three steps can help small business owners that work tirelessly to build their businesses make them resilient.

#1 Choose to Prepare a Business for Disaster

Disaster recovery planning allows businesses to manage financial losses and maintain continuity when an emergency strikes. Unfortunately, 61 percent of small businesses haven’t created a formal disaster recovery plan, according to an Insureon survey. Without a way to pay the bills and keep contact with important vendors and customers, small companies often suffer when normal operations are abruptly interrupted.

A disaster recovery plan is a critical tool for allowing your small business to maintain essential operations in a weather disaster. Create a plan and commit to revisiting it throughout the year to make staffing, client or financial updates.

#2 Prevent Cash Flow Interruption

A weather disaster disrupts your business’s cash flow and introduces new expenses. Unless your business has enough cash on hand to pay for operating expenses, payroll, loan payments and other costs during an extended closure — a rarity among small businesses — you’ll need financial products to keep your business afloat during a weather disaster.

Business interruption insurance is a smart purchase for small businesses. Often included in commercial property insurance policies, business interruption insurance replaces income lost during a disaster so you can make payroll and cover operating expenses. However, business interruption insurance typically has a 48-hour waiting period before coverage starts, the Insurance Information Institute warns. It also doesn’t cover the extra expenses you face due to a weather disaster, although business owners can purchase extra expense coverage.

Business financing offers small businesses flexible funding so they can cover necessary costs as soon as a disaster strikes, not 48 hours later. A business credit card or business line of credit could also be a good, flexible option in a disaster. However, small business owners have several alternatives. The U.S. Small Business Administration (SBA) offers a free 30-minute online training course starting with determining financial needs and then learning about loans, grants, venture capital, angel investors, crowd funding and other financial options available.

Also, the Internal Revenue Service offers a Disaster Resource Guide that reviews taxable losses and procedures, discusses records recovery and contains worksheets and links to necessary forms.

#3 Develop a Disaster Communications Plan

Insurance products and small business financing can help a business recover from the immediate financial impacts of a disaster. However, if you don’t maintain contact with customers, suppliers and employees, you could lose the valuable business relationships that allow your business to operate after the disaster ends.

The following continuity planning steps can help ensure business data ad communications.

  • Make a list of important contacts, including staff, major clients and suppliers, insurance agents, financial institutions and emergency response agencies.
  • Identify essential staff and assign responsibilities for tasks to be taken during and immediately after a weather disaster.
  • Migrate to cloud storage to regularly back up business data.
  • Create a communications strategy to inform employees and customers of business interruptions. SCORE, an SBA partner, offers a checklist that includes developing a crisis communications plan.
  • Identify an alternative site where you can carry out essential business operations and have employees install and test any essential software on devices that enable them to work remotely.

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